System and method for assigning a line of credit to a credit card account

ABSTRACT

A system assigns a credit limit to an account for a credit card of a card holder based on whether the card holder poses an acceptable risk. The system activates an account for the credit card, assigns an initial credit limit well below a tolerance level to the account, develops credit history data based on account activity during predetermined short intervals of time, evaluates the credit history data after each of the predetermined short time intervals, and determines whether to increase the credit limit of the account based on the evaluated credit history.

FIELD OF THE INVENTION

The present invention is directed to credit card systems and, moreparticularly, to systems and methods that reduce the risk to credit cardissuers by providing low initial credit limits and frequent evaluationsof their credit card holders.

BACKGROUND OF THE INVENTION

Conventional systems assign credit limits to customers in a two stepprocess. First, a credit card issuer identifies potential customersbased on information from credit bureaus, such as past credit history,prior declarations of bankruptcy, and the like. Once the issueridentifies the potential customers, it offers its credit card to them.The credit card offer typically extends high limits with its credit cardaccounts to the potential customers, such as $10,000-20,000. The issuerusually selects a credit limit equal to a tolerance level (i.e., anamount the issuer can afford to risk on a potential customer). Theissuer then issues credit cards to those customers who accept the offer.

Second, after some long period of time, such as one to two years, theissuer considers whether to increase a customer's credit card limit bystudying the customer's past performance. If the customer has madetimely payments in the past, for example, the issuer usually increasesthe credit limit. Otherwise, the issuer holds the credit limit at itscurrent level.

Two problems exist with the conventional systems. First, the credit cardissuer typically grants high initial credit limits based solely oncredit bureau information. White not questioning the accuracy of thisinformation, past performance does not dictate future conduct. In otherwords, even a credit card holder with an exemplary credit record mightuse all of the initial credit without making any payments. As a result,the issuer would need to take action to recover its money, an act thatmight be futile if the card holder files for bankruptcy.

A second problem involves the long time period before granting a creditlimit increase. Because the initial credit limit is typically large,credit card issuers usually wait a long period of time before evenconsidering a credit limit increase. This might result in a loss ofcustomers, if customers requests for credit limit increases are denied.

Therefore, a need exists for assigning credit limits that minimize therisk to credit card issuers and that provide for rapid evaluations andcredit limit increases.

SUMMARY OF THE INVENTION

Systems and methods consistent with the present invention address thisneed by initially assigning low credit limits to new credit cardaccounts and by evaluating and increasing the credit limits withinrelatively short periods of time.

A system consistent with the present invention assigns a credit limit toa credit card issued to a card holder based on whether the card holderposes an acceptable risk. The system activates an account for the creditcard, assigns an initial credit limit well below a tolerance level tothe account, develops credit history data based on account activityduring predetermined short intervals of time, evaluates the credithistory data after each of the predetermined short time intervals, anddetermines whether to increase the credit limit of the account based onthe evaluated credit history.

BRIEF DESCRIPTION OF THE DRAWINGS

The accompanying drawings, which are incorporated in and constitute apart of this specification, illustrate an embodiment of the inventionand, together with the description, explain the invention. In thedrawings:

FIG. 1 is a diagram of a computer system consistent with the presentinvention;

FIG. 2 is a diagram of contents of a memory consistent with the presentinvention;

FIG. 3 is a diagram of credit history data in the memory of FIG. 2; and

FIG. 4 is a flowchart of processing for assigning and evaluating acredit limit in a manner consistent with the present invention.

DETAILED DESCRIPTION

The following detailed description of the invention refers to theaccompanying drawings. The same reference numbers in different drawingsidentify the same or similar elements. Also, the following detaileddescription does not limit the invention. Instead, the scope of theinvention is defined by the appended claims and equivalents.

Systems and methods consistent with the present invention protect creditcard issuers while addressing the needs of its card holders by initiallyassigning low credit limits to new credit card accounts and evaluatingand increasing the limits at regular time intervals. This limits therisk to issuers until such time that they can learn more about thecredit card holders while, on the other hand, permitting credit cardholders to build a favorable credit history.

System Description

FIG. 1 is a diagram of a system architecture for a computer system withwhich the invention may be implemented. The exemplary computer system ofFIG. 1 is for descriptive purposes only. Although the description mayrefer to terms commonly used in describing particular computer systems,such as an IBM PS/2 personal computer, the description and conceptsequally apply to other computer systems, such as network computers,workstations, and even mainframe computers having architecturesdissimilar to FIG. 1.

Computer system 100 includes a central processing unit (CPU) 105, whichmay be implemented with a conventional microprocessor, a random accessmemory (RAM) 110 for temporary storage of information, and a read onlymemory (ROM) 115 for permanent storage of information. A memorycontroller 120 controls the RAM 110.

A bus 130 interconnects the components of computer system 100. A buscontroller 125 controls the bus 130. An interrupt controller 135receives and processes various interrupt signals from the systemcomponents.

Mass storage may be provided by diskette 142, CD ROM 147, or hard drive152. Data and software may be exchanged with computer system 100 viaremovable media such as diskette 142 and CD ROM 147. Diskette 142inserts into diskette drive 141 which, in turn, connects to bus 130 viaa controller 140. Similarly, CD ROM 147 inserts into CD ROM drive 146which, in turn, connects to bus 130 via controller 145. Hard disk 152 ispart of a fixed disk drive 151 that connects to bus 130 by controller150.

User input to computer system 100 may be provided by a number ofdevices. For example, a keyboard 156 and mouse 157 connect to bus 130via controller 155. It will be obvious to those reasonably skilled inthe art that other input devices, such as a pen, a tablet, or speechrecognition mechanisms, may connect to bus 130 and an appropriatecontroller and software, as required. A direct memory access (DMA)controller 160 performs direct memory access to RAM 110. User output maybe generated by a video controller 165 that controls video display 170.

Computer system 100 also includes a communications adaptor 190 thatallows the system to be interconnected to additional computing resourcesvia a local area network (LAN) or a wide area network (WAN), such as theInternet, schematically illustrated by bus 191 and network 195. Signalstraveling through network 195 can generally be referred to as “carrierwaves” that transport information. Although aspects of the presentinvention are described as being stored in memory in the form ofinstructions, one skilled in the art will appreciate that those aspectsmay be stored on other computer-readable media, such as secondarystorage devices like hard disks, floppy disks, or CD ROM, or other formsof RAM or ROM, or a carrier wave.

Operation of computer system 100 is generally controlled and coordinatedby operating system software. The operating system controls allocationof system resources and performs tasks, such as memory management,process scheduling, networking, and services, among other things.

FIG. 2 is a diagram of memory 200 consistent with the present invention.Memory 200 may include system RAM 110 (FIG. 1), but may alternativelyinclude other types of memories including any of the memories shown inFIG. 1.

Memory 200 includes a database that stores information regarding severalaccounts 210, 220, and 230. Account 210, for example, includes anaccount number 212, a credit card limit 214, credit history data 216,and other identifying information 21$. The account number 212 identifiesa credit card account of a card holder. The credit card limit 214identifies the amount of credit extended to the account. The credithistory data 216 includes account history information and will bedescribed below with reference to FIG. 3. The other identifyinginformation 218 includes information regarding the card holder, such asthe card holder's name, address, and telephone number, and other similaridentifying information.

Exemplary Credit History Data

FIG. 3 is a diagram of credit history data 216 consistent with thepresent invention. The credit history data 216 includes information onthe use of the extended credit limit 310, transaction data 320, cashadvance data 330, and payment information 340. Of course, the accountdata may include additional information regarding the credit history ofthe card holder.

The information on the use of the extended credit limit 310 includesdata regarding the manner in which the card holder has used the givencredit limit, such as whether the card holder used all or most of thecredit limit and how quickly the card holder did this after receivingthe credit card. A card holder that quickly uses most of the extendedcredit limit may pose a greater credit risk than a card holder that usesonly a portion of the extended credit limit. The transaction data 320includes data regarding the types of transactions for which the creditcard was used by the card holder. Certain types of transactions mayindicate that the card holder poses a credit risk.

The cash advance data 330 includes data regarding the frequency of anycash advances obtained using the credit card. A large number of cashadvances by a card holder may indicate that the card holder poses acredit risk. The payment information 340 includes data regarding thenumber of late or missed payments by the card holder and the amount ofinitial payments by the card holder. A card holder that routinely payslate or misses payment poses a credit risk. Also, a card holder thatmakes only minimum payments also poses a credit risk.

The credit card issuer uses the credit history data 216 to determinewhether to increase a credit limit of an account in a manner describedbelow.

System Operation

FIG. 4 is a flowchart of processing for assigning a credit limit in amanner consistent with the present invention. The credit card issuerselects potential customers in a manner similar to the way conventionalsystems make the selection. That is, the issuer identifies potentialcustomers that pose a reasonable risk based on information provided by acredit bureau. For example, the issuer identifies potential customersbased on their past credit history, prior declarations of bankruptcy,etc. The issuer then offers its credit card to the potential customers.

For those customers that accept the offer, the issuer activates newaccounts for them [step 410]. The issuer initially assigns a low creditlimit, such as a $1,000 limit, to each account [step 420]. Unlike thehigh credit limit assigned by conventional systems, the low credit limitis well below a degree of tolerance (i.e., an amount the issuer canafford to risk on a customer) to minimize the issuer's risk.

The issuer then waits a predetermined short time interval, such as a twomonth interval, to collect credit history data corresponding to theaccounts [step 430]. After the predetermined short time interval, theissuer, without human intervention, evaluates the credit history datafor each account to generate a score for the account [step 440]. Theissuer generates the score based on one or more of the followinginformation: (1) the manner in which the customer used the given creditlimit; (2) the types of transactions for which the customer used thecredit card; (3) whether the customer made any cash advances; (4) thenumber of late or missed payments by the customer; (5) the amount of theinitial payments by the customer; (6) credit bureau information; etc.

From the generated score, the issuer determines whether to increase thecredit limit assigned to an account [step 450]. If the score is abovesome predetermined threshold, the issuer increases the credit limitassigned to the account by a determined amount [step 460]. The issuerthen waits for another time interval to lapse [step 430] before itreevaluates the credit history data for each account [step 440]. If thescore is below the predetermined threshold, the issuer denies the creditlimit increase and waits for another time interval to lapse [step 430]before reevaluating the credit history data for each account [step 440].

In this manner, the credit card issuer minimizes its risk by keeping thecredit limit low until it has time to learn more about the spendinghabits of the card holder. If the card holder poses an acceptable risk,as determined at regular intervals, the issuer quickly increases thecard holder's credit limit.

The foregoing description of preferred embodiments of the presentinvention provides illustration and description, but is not intended tobe exhaustive or to limit the invention to the precise form disclosed.Modifications and variations are possible in light of the aboveteachings or may be acquired from practice of the invention. The scopeof the invention is defined by the claims and their equivalents.

1-33. (canceled)
 34. A computer-implemented method for managing a creditlimit for a credit card issued to a card holder, comprising: initiatingactivation of an account for the credit card; assigning an initialcredit limit to the account, the initial credit limit being below atolerance level for the card holder; developing credit history databased on the card holder's use of the account during respectivepredetermined intervals of time, wherein the card holder's use of theaccount reflects whether the card holder used all or most of the initialcredit limit and how quickly the card holder used all or most of theinitial credit limit; evaluating, by a computer, the developed credithistory data after each of the predetermined time intervals; anddetermining, by the computer, whether to increase the credit limit ofthe account based on the evaluation.
 35. The method of claim 34, furthercomprising: obtaining information from a credit bureau regarding thecard holder.
 36. The method of claim 35, wherein the information fromthe credit bureau relates to at least one prior declaration ofbankruptcy by the card holder.
 37. The method of claim 34, wherein thepredetermined intervals of time cover a predetermined number of paymentcycles reflecting less than one year of the card holder's use of theaccount.
 38. The method of claim 34, wherein the tolerance level isbased on an industry standard level of risk associated with the cardholder.
 39. The method of claim 34, wherein the tolerance level is basedon the card holder's credit history.
 40. The method of claim 34, whereina financial service provider issues the credit card and develops thecredit history.
 41. The method of claim 34, wherein the card holder'suse of the account further reflects at least one of: late or missingpayments made by the card holder, cash advances requested by the cardholder, types of purchase transactions made by the card holder, and theamount of initial payments made by the card holder to the account. 42.The method of claim 34, wherein the card holder's use of the accountcomprises each transaction made by the card holder with the credit cardduring the respective predetermined interval of time.
 43. The method ofclaim 34, wherein evaluating the developed credit history data furthercomprises generating a score based on the card holder's use of theaccount over each respective predetermined time interval.
 44. The methodof claim 43, wherein the decision to increase the credit limit of theaccount is based on the score generated from evaluating the developedcredit history.
 45. The method of claim 41, wherein the card holder'suse of the account further reflects making only minimum payments to theaccount.
 46. A system for managing a credit limit for a credit cardissued to a card holder, comprising: a memory storing instructions; anda processor configured to execute the instructions to: initiateactivation of an account for the credit card; assign an initial creditlimit to the account, the initial credit limit being below a tolerancelevel for the card holder; developing credit history data based on thecard holder's use of the account during respective predeterminedintervals of time, wherein the card holder's use of the account reflectswhether the card holder used all or most of the initial credit limit andhow quickly the card holder used all or most of the initial creditlimit; evaluating the developed credit history data after each of thepredetermined time intervals; and determining whether to increase thecredit limit of the account based on the evaluation.
 47. The system ofclaim 46, wherein the card holder's use of the account further reflectsat least one of: late or missing payments made by the card holder, cashadvances requested by the card holder, types of purchase transactionsmade by the card holder, and the amount of initial payments made by thecard holder to the account.
 48. The system of claim 47, wherein the cardholder's use of the account is based on each transaction made by thecard holder with the credit card during the respective predeterminedshort interval of time.
 49. The system of claim 47, wherein theprocessor is further configured to: evaluate the developed credithistory data by generating a score based on the card holder's use of theaccount over each respective predetermined short time interval; anddetermine whether to increase the credit limit of the account based onthe generated score.
 50. A non-transitory computer readable medium formanaging a credit limit for a credit card issued to a card holder; themedium comprising instructions that, when executed by a processor, causethe processor to perform operations comprising: initiating activation ofan account for the credit card; assigning an initial credit limit to theaccount, the initial credit limit being below a tolerance level for thecard holder; developing credit history data based on the card holder'suse of the account during respective predetermined intervals of time,wherein the card holder's use of the account reflects whether the cardholder used all or most of the initial credit limit and how quickly thecard holder used all or most of the initial credit limit; evaluating thedeveloped credit history data after each of the predetermined timeintervals; and determining whether to increase the credit limit of theaccount based on the evaluation.
 51. The non-transitory computerreadable medium of claim 50, wherein the card holder's use of theaccount further reflects at least one of: late or missing payments madeby the card holder, cash advances requested by the card holder, types ofpurchase transactions made by the card holder, and the amount of initialpayments made by the card holder to the account.
 52. The non-transitorycomputer readable medium of claim 50, wherein the card holder's use ofthe account is based on each transaction made by the card holder withthe credit card during the respective predetermined short interval oftime.
 53. The non-transitory computer readable medium of claim 50,wherein the processor further generates a score based on the cardholder's use of the account over each respective predetermined shorttime interval, and determines whether to increase the credit limit ofthe account based on the generated score.